Chitosan, a natural biopolymer with osteoconductive properties is widely investigated to generate scaffolds for bone tissue engineering applications. However, chitosan based scaffolds lacks in mechanical strength and structural stability in hydrated condition and thereby limits its application for bone tissue regeneration. Thus in the present study, to overcome the limitations associated with chitosan based scaffolds, we fabricated polyelectrolyte complexation mediated composite scaffold of chitosan and chondroitin sulfate incorporated with nano-sized bioglass. Developed scaffolds were successfully characterized for various morphological, physico-chemical, mechanical and apatite forming properties using XRD, FT-IR, FE-SEM and TEM. It was observed that polyelectrolyte complexation followed by incorporation of bioglass significantly enhances mechanical strength, reduces excessive swelling behavior and enhances structural stability of the scaffold in hydrated condition. Also, in-vitro cell adhesion, spreading, viability and cytotoxity were investigated to evaluate the cell supportive properties of the developed scaffolds. Furthermore, alkaline phosphatase activity, biomineralization and collagen type I expression were observed to be significantly higher over the composite scaffold indicating its superior osteogenic potential. More importantly, in-vivo iliac crest bone defect study revealed that implanted composite scaffold facilitate tissue regeneration and integration with native bone tissue. Thus, developed composite scaffold might be a suitable biomaterial for bone tissue engineering applications.